Overseas Protection of Chinese Trademarks under the WTO Regime

By Lou Hong, JSD Candidate, Senior Research Associate, School of Law, City University of Hong Kong,[Trademark]

I. Introduction

With China’s accession to the WTO, more and more Chinese companies are engaged in international business. As one of the most important preparations for entry into these target markets, their trademarks must be registered, in accordance with the territoriality of trademarks laws. Compared with some internationally known trademarks from some developed countries, the protection of Chinese trademarks is very limited. It is shown by the limited number of Chinese trademarks registered in main trademark registration systems around the world, and increasing number of cases infringing Chinese trademarks. Therefore, how to deal with overseas protection of trademarks has become an urgent and extremely important task for Chinese companies.

The purpose of this paper is to produce disciplined scholarly endeavour which carefully examines international trademark protection of Chinese trademarks under the WTO regime. Structurally, this paper is divided into two sections. In the first section, three main problems of international registration and usage of Chinese trademarks are discussed. As countermeasures towards the problems above, in the second section, this paper discusses three aspects of international trademark protection provided under the WTO regime. Firstly, the principles of national treatment (NT) and most favoured nation (MFN) treatment guarantee the equal right of Chinese companies in trademark registration and usage. Secondly, the well-known trademarks protection provided by the TRIPs Agreement and the Paris Convention can be used by Chinese companies when the goodwill is established. Thirdly, Chinese government could employ WTO dispute settlement mechanism as important assistance to domestic enterprises.

II. Current distinguished problems of international protection of Chinese trademarks

1. Small volume of overseas registration of Chinese trademarks

In terms of the total number of trademark registrations, the Chinese trademark office is the biggest in the world. According to statistics from the Chinese State Administration for Industry and Commerce (SAIC), in 2012, the State Intellectual Property Office of PRC (SIPO) received 1,648,316 trademark applications, which was the most in the world.

However, in contrast to the large number of domestic trademark registrations, the number of overseas registered Chinese trademarks is dramatically smaller. According to statistics from the World Intellectual Property Organization (WIPO), in 2012, there were only 2,179 Chinese trademarks internationally registered through the Madrid International Trademark Registration System. This number is only about 1/3 of that in Germany.

As for Europe, the number of Community Trademark applications from China was relatively tiny in relation to the total. In 2012, there were only 2,044 Chinese trademarks registered as a Community Trademark, ranked fourteenth in the world. This number was smaller than that of many EU countries, and also fewer than some non-EU countries, for example, the U.S., Japan and Canada.

In the U.S., according to the statistics table of trademark applications filed by residents of foreign countries from the United States Patent and Trademark Office(USPTO), 4,756 Chinese original trademarks were registered in 2012. This figure is much smaller than Germany’s 11,504.

2. Lack of international influential trademarks

Although some Chinese enterprises have a huge market share in China, they are still at the preliminary stage of internationalization. Some research was made through the 2013 Annual Report of the World’s 500 Most Influential Brands from the World Brand Lab (WBL), there were only 25 Chinese brands in the world’s 500 most influential brands, 5% of the total amount. In contrast, there were 232 from the U.S., 47 from France, and 40 from Japan. Figures from research conducted by a different source, “BrandZ Top 100 Most Valuable Global Brands 2010” shows only 9 Chinese brands included in the list. The gap between China and certain developed countries seems to be disproportionately very big in terms of the number of internationally influential companies.

Furthermore, taking a closer look at these 25 Chinese brands named among the World’s 500 Most Influential Brands and the 9 Chinese brands in the Top 100 Most Valuable Global Brands, it is a disturbing fact that most of them are large stateowned monopoly enterprises, with examples from the oil industry, the electricity supply, financial services and telecommunications. In China, foreign capital and private capital are not normally allowed in these industries. For example, “CCTV” is the national central television company in China; “STATE GRID” Corporation of China is the only electricity supplier in China; “Petro China” and “Sinopec” are both oil industry companies fully controlled by the state. Some of these companies are just beginning to engage in transnational or multinational business, and their trademarks cannot be regarded as enjoying a very high profile with consumers internationally. In Europe, there are very few people familiar with Chinese trademarks. “Haier” and “Lenovo,” both Chinese companies with significant international business, may rightly claim to have two of the most internationally well-known trademarks, but they certainly do not enjoy anything like the fame and ubiquitous recognition of such America-origin multinational trademarks as “Microsoft,” “Google” or “McDonald’s.”

3. Increasing cases squatting and infringing Chinese trademarks

Over the last ten years, a number of cases of Chinese trademarks being passed-off and registered outside China by other companies have emerged. An increasing number of Chinese trademarks are registered by rival companies apparently seeking competitive gains. Some non-Chinese rivals of Chinese companies have been alleged to use trademark law as a device to exclude market entry by Chinese companies. In a typical example in 2005, Bosch-Siemens registered “HiSense” in Germany and the European Community Trademarks System. The trademark was remarkably similar to “Hisense,” a well-known household appliances trademark in China. Therefore, the Chinese Hisense Company was prevented from registering its trademark “Hisense” in the EU, and had to negotiate with Bosch-Siemens to get its trademark back. Another case concerned a Chinese energysaving lamp manufacturer, Donglin, with its domestic trademark “Firefly” registered by its competitor Siemens- Osram GmbH in Germany, France and Spain. Some other reports showed the Chinese traditional wine brand “WULIANGYE” is registered by a local company in South Korea; the Chinese pen brand “HERO” was registered by a local pen seller in Japan; the trademark for cosmetics “DABAO” is ‘spitefully’ registered in the U.S., the UK, and Benelux (Belgium, Holland and Luxemburg); and the wine trademark “RED STARTS” was squatted in the EU, Sweden, Ireland, New Zealand and the UK. Available statistics indicate more than 200 Chinese trademarks are registered by potential rivals in Japan, more than 80 in Indonesia, and more than 200 in Australia.

A basic analysis of these trademark squatting cases suggests most of them can be seen as malicious behaviour, either by competitors seeking advantage or as a means to gain financial benefit from holding a Chinese trademark and negotiating it back to its original holder at a cost. In other words, trademark squatting has become an effective barrier for market entry of certain Chinese companies with an established trademark at home, while at the same time offering an opportunity to make money from Chinese companies by effectively selling them something they already rightfully own at home but do not have property of overseas. For example, in the case of the Golden pens brand “HERO” mentioned above, the Japanese seller registered “HERO” in Japan, and settled for 5% of the total profits of the Chinese pen company for using this trademark. In Canada, there is even a so-called Chinese trademarks transferring company. The main business of this company is to register famous Chinese trademarks in Canada, and then sell the marks back to Chinese companies at a very expensive price. Therefore, overseas registration and subsequent use of trademarks have become a very urgent and extremely important task for Chinese companies.

III. International trademark protections under the WTO regime

1. Non-discrimination principles guarantee equal rights

Under the WTO regime, there are two fundamental non-discrimination principles of NT and MFN treatment. These principles are the legal foundation for Chinese companies to take legal process to protect their trademark right internationally.

In terms of IPR protection, the principle of NT was first proposed by the Paris Convention. It is also an important component of the TRIPs Agreement and the Madrid Agreement. Under the principle of NT, each contracting country awards each other contracting country equal treatment and let nationals of other contracting country enjoy the equal treatment with its own nationals. That is to say, the goal of the international protection of trademark is removing obstacles among countries arising in different nationalities and awarding the same treatment to foreign enterprises and domestic enterprises in the field of trademark protection. Therefore, Chinese companies enjoy the same right in trademark registration and usage as local companies under trademark law of other contracting countries.

Another important principle is MFN treatment. As the development of the NT principle, the MFN treatment principle is mentioned in the TRIPs Agreement. Its content is that, any interest, benefits, privileges or immunities provided by one member to nationals of another member in the field of the IP protection shall be immediately and unconditionally provided to the nationals of all other members. Therefore, the problem that some countries award specific countries excessive concessions so as to causing discrimination of other countries nationals could be avoided. The principle of MFN treatment further ensures the fair competition and can also be used by Chinese companies.

A good example of these two principles might be the Madrid International Trademark Registration System, which was established by the Madrid Agreement and the Madrid Protocol. China joined the Madrid Agreement in 1989 and the Madrid Protocol in 1995. Under Madrid system, contracting member states provide NT and MFN to each others in terms of trademark registration. In other words, Chinese companies could submit international trademarks application with the Madrid System, and it is regarded with the same effect as domestic trademark applications in member states of this system.

The Madrid international trademark registration system is highly recommended to Chinese companies who want to register trademarks abroad because the application of the Madrid international trademark is very convenient and the cost of the Madrid trademark registration is quite cheap for comprehensive international registrations around the world. There is another important point needed to be emphasized, call “central attack.” It means that if, under the Madrid Agreement within five years from the date of international registration, the trademark is declared invalid or otherwise lost in the country of origin, all the national registration that are based upon it is also lost. This was the main reason that the Madrid Agreement was not joined by the U.S. and many other European countries. As an alternative, the Madrid Protocol was established in 1989. Under the Madrid Protocol, where a “central attack” is successful, it is possible to transform the international registration into a series of national or regional applications. Then the EU joined the Madrid Protocol in 2004, and the U.S. joined it in 2003. Because of “central attack,” it is very important for Chinese companies to have stable domestic trademark registration in China before going abroad.

2. Well-known trademarks are specially protected

The importance of well-known trademarks has been recognised in the TRIPs Agreement in conjunction with the Paris Convention. One difference between TRIPs Agreement and the Paris Convention is that the TRIPs Agreement provides protection on service trademarks. The meaning of well-known trademarks protection is that where a registered trademark is in conflict with a well-known trademark, the later has the right to request the cancellation of this registered trademark within 5 years from the date of trademark registration. These provisions provide protection of unregistered well-known trademark and give relief possibility to those who do not timely register trademarks internationally. As discussed in the case of the first section, if the “Hisence” trademark could be regarded well known in the whole EU or in Germany, it might enjoy protection provided by provision related to the well-known trademark, even if it was not registered. In addition, there is the implementation of cross-class protection for well-known trademark, not confining the protection in the same or similar goods. In a word, these regulations provide for wellknown marks stronger protection than ordinary trademarks. If a Chinese trademark could be considered as a well-known trademark in a foreign country, its protection in this country could be very strong under the principle of special protection for wellknown trademarks.

As examples of well-known trademarks protection, we may make a closer review on the legal practice in the EU and its member states, particular in the UK and Ireland. The provision on conflict with a mark of repute (regarded same as a well-known trademark in the TRIPs Agreement and the Paris Convention) was regulated in the Article 8 (2) (c) of the EU Trademark Directive. In the UK, the Section 5 (3) of the UK Trademark Act 1994 is the provision that relates to the conflict with a mark of repute, and was different from former regulation. In the past, this provision only protected where the defendant was using a similar mark on dissimilar goods, not on similar goods. However, after Davidoff v. Gofkid [2003] ECR I-389 and Adidas v. Fitnessword [2003] ECR I-12537, it has been extend to identical or similar goods and services by the ECJ, and then the UK changed their trademark law to adopt the extension. Similar to the UK, Ireland also followed these cases within Section 10 of the Irish Trademark Act of 1996. Furthermore, one important element of this provision is whether a trademark has a reputation. According to the guidance from General Motors Corp v. Yplon [1999] ECR I-5241, the mark must be known to a significant portion of public. Another important element is that the use of the applicant’s mark will take unfair advantage of, or is detrimental to, the distinctive character or the reputation of the trade mark. In order to use the provision on a mark of repute, importantly, Chinese companies need to establish reputation and goodwill. It is suggested that making advertisements could be very helpful for that purpose. It is believed through advertising, promoting and substantial developing, some international influential Chinese trademarks will be established in the future.

3. The WTO provides effective dispute settlements

Because of territoriality of trademark laws, it is difficult to influence legislation and court judgment in other countries when unfair dealing happens. Fortunately, the WTO has provided dispute settlements regime through the Dispute Settlement Understanding (DSU). The Dispute Settlement Body (DSB) is a responsible organ and it includes all WTO members. To be fair, the dispute settlement in the WTO is quite efficient, from consolation to the release of Panel report, it normally only takes one year. Including the appeal procedure, it is also acceptably done in one and half years. Although individual companies cannot be parties of dispute settlement, their countries could take action on behalf of them. Therefore, with help from the Chinese government, the WTO dispute settlement might be effectively used for Chinese companies in overseas trademarks protection.

Actually, there have been some WTO cases related to trademark protection. For example, China may learn experience from these cases, e.g., United States - Section 211 Omnibus Appropriations Act of 1998. In this case, the EC and its member states claimed that the U.S. breached its obligations based on the TRIPs Agreement (in conjunction with the Paris Convention). The EC claimed that Section 211 did not allow transactions related to the registration and renewal of confiscated trademarks in which Cuba or a Cuban national trademark has an interest. And it prohibited U.S. courts from recognizing, enforcing or otherwise validating any assertion of rights in respect of confiscated marks and names. Section 211 also prohibited recognition, enforcement or other validation of rights of such property. These requirements breached the U.S.’s obligations under the TRIPs Agreement, including Article 3 of NT of Article 4 of MFN treatment and some other obligations. Although the Panel rejected 13 of 14 claims by the EC and their Member States, the Appellate Body reversed many findings of the Panel finally, and concluded the U.S. violated the NT obligations and MFN treatment.

This case is a good example of dispute settlement of WTO. It showed the possibility of using WTO regime to protect trademark right internationally. With the rapid increasing number of Chinese companies going abroad, more and more cases happened that Chinese trademarks were infringed in other countries. Normally Chinese government cannot involve itself in these cases because trademark laws have strong territorial characters. With WTO dispute settlement, Chinese government could help Chinese companies in overseas trademarks protection, especially in the cases where Chinese companies are unfairly treated abroad.

III. Conclusion

In sum, this paper analyzes current situation of overseas registration and usage of Chinese trademarks, and discusses the WTO regulations, which may be used to enhance the protection. Three main problems are pointed out through analysis. Firstly, the number of Chinese trademark registrations overseas is very small. Secondly, there is very few international influential trademarks in China. Thirdly, increasingly large number of cases squatting and infringing on Chinese trademarks have emerged. This paper suggests Chinese companies use the WTO regimes to protect their trademark rights. On one hand, the equal right of Chinese companies in trademark registration and usage should be guaranteed by WTO non-discrimination principles. On the other hand, through further developing, some international influential Chinese trademarks will be established in the future, and then the well-known trademarks protection provided by the TRIPs Agreement and the Paris Convention can be used. Finally, on behalf of Chinese companies, Chinese government could take action with WTO dispute settlement in trademark protection. It is hoped that these suggestions can help dealing with the three problems discussed above, and promoting the further development of Chinese companies in terms of international trademark protection.